Germany asks banks to replenish capital buffers as lending booms

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(Bloomberg) —

Germany is telling its banks to replenish the capital buffers they were allowed to deplete at the start of the pandemic, joining other European countries in tightening regulations again as lenders take on more risk.

The country’s banks must build up 22 billion euros ($25 billion) in equity by February next year, the country’s financial authorities announced on Wednesday. The vast majority have enough capital to meet regulatory requirements without raising new funds, BaFin Chairman Mark Branson told reporters.

“It’s time to go into prevention mode,” Branson told reporters on a conference call. “There are decisive signals that it is time to make the financial system more resilient.”

Germany joins countries like France and Ireland in reactivating the requirement for banks to hold additional capital to help them weather a downturn in the economy. The region has weathered the worst of the fallout from the pandemic thanks to massive taxpayer support for businesses and consumers and unprecedented regulatory relief for banks.

As lenders pushed to make some of these measures permanent, European regulators began to tighten the reins. Speaking on the same call, Bundesbank Vice President Claudia Buch cited debt risk premia that are lower than before the pandemic as one of the areas of concern. The mortgage boom is another area, she said.

The 22 billion euros in capital is broken down into 17 billion euros for the countercyclical buffer and an additional 5 billion euros for German residential mortgages, according to Branson.

©2022 Bloomberg LP

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